VMware, Carahsoft Pay $75.5 Million To Settle Government Overcharging Lawsuit

June 30, 2015
CRN

VMware and reseller partner Carahsoft have agreed to pay $75.5 million to settle a civil lawsuit alleging that it overcharged the federal government for VMware products and services over a six-year period, the U.S. Department of Justice said in a press release Tuesday.

Dane Smith, a former VMware executive who was vice president of Americas sales from 2005 to 2008, filed the lawsuit after leaving the vendor in 2010. The case had remained sealed by the DOJ until today.

VMware and Carahsoft allegedly provided "inaccurate pricing, inaccurate disclosures, and incomplete information" about VMware products and services to the U.S. General Services Administration (GSA), the purchasing arm of the federal government, Cotchett, Pitre & McCarthy, the law firm representing Smith, said in a separate press release.

VMware and Carahsoft allegedly gave private-sector customers better pricing and discounts on VMware products and services than it offered government customers, according to a document outlining the lawsuit allegations.

VMware and Carahsoft also allegedly gave the GSA inaccurate information about "consolidation ratios," or the number of virtual machines that can run on a physical server. VMware recommended a 6:1 VM-to-server ratio to commercial customers, and a 4:1 ratio for government customers, according to the complaint.

As a result, government agencies bought more VMware server virtualization software than they actually needed, according to the complaint.

The lawsuit alleges that VMware and Carahsoft violated the False Claims Act, a piece of legislation that dates back to the Civil War that lets private citizens sue companies and individuals for defrauding the government. It's often called the "Lincoln Law" because President Abraham Lincoln supported it as a way of stopping shady contractors from ripping off the Union Army during the war.

According to Cotchett, Pitre & McCarthy, the VMware-Carahsoft settlement is "one of the five largest recoveries against a technology company in the history of the False Claims Act."

A VMware spokesman told CRN the vendor denies the allegations and decided to settle the case to avoid a lengthy legal battle.  

"VMware believes that its commercial sales practice disclosures to the GSA were accurate and denies that it violated the False Claims Act," the spokesman said in an email. "[VMware] nevertheless elected to settle this lawsuit rather than engage in protracted litigation with one of its important customers – the federal government."... (To read the entire article, please click HERE)